Let's talk Donchian Breakouts

Love Richard Donchian

Now, my use of DBs is to confirm the direction of the trend

I like it for EURUSD

I use another criteria to enter, but DB tells me what direction I will be entering

-Tom

DB isn't magic, but if you can find a good number of days back to measure, you can often time the market's direction change

Love EURUSD for this because it has "lived" in an 8000 pip range in it's lifetime... with smaller whipsaws than GBPJPY... So lots of room for trending here.

What's key about the 8000 pip range is that real world events have pushed this pair all over the board. Take EURGBP for example... you'd never see that type of volatility.

And spread is tiny w/ EURUSD too

Lot of views but no responses

I know people like specifics, so I'll just say that my use of DB is to only take shorts on the bottom breakouts, and change to longs only after an upper breakout occurs.

Like I said, DB is not the entry criteria for me, but just the market's sentiment in recent days.... I suppose an RSI or some other TA may work as well, but DB lets you know that you've truly broken a resistance level.



And to anyone who does not know what a Donchian Breakout is, google it. Real dollars are in play from this wallet on it.

If your willing, let's see some charts and trades taken.

Donchian is the father of trend trading. I've researched his stuff over the years and like it, but don't trade that way. A few threads got started but never went anywhere here at FF.

I think the issue these days is getting the exit right.

Hi Tdion,

Dbs work well. What have you found to be the ideal number of days to look back and what time frame do you use.

"I love it when people say Richard who!?
Breakouts.... oh, breakouts, high-low breakouts?
Why didn't you say so."

You can clearly see how information has been distilled down as it was passed down from one to another. I hate it when people call it the high-low channel, or high-low band, or high-low breakout.

I would guess that's where you separate the real traders and wannabe traders

I like to use the term: aspiring traders.

Okay, I don't give away my work for free.

But I'll say this... I'm an MT4 trader. There is no Donchian Channel indicator, so everything is programmed into an EA....

Then, use the high and low of a set of previous candles to find the max and min over X candles back.

The one free piece of info I'll give is the Timeframe: D1.

Use the optimizer to find the optimal value.

And put your strategy into the code, using the DB to filter trades not agreeing with direction.


I am a Quant. So, I come from a Quant angle.


Proof's in the pudding. My strategy, combined with DB filter, yields about 17,000 pips since '99 on EURUSD with a 950 pip max drawdown. Will be interesting to see if my optimal number will keep in tune with the EURUSD's rhythm in coming years.

Aspiring traders = has hope and a chance to become real traders

Wannabe traders = has a certain attitude that has no chance of becoming real traders

Good job man, glad you found a way to trade that suites your fancy. Using DB as trend filter sounds like a neat idea too.

I love Donchian breakouts, but I modify them slightly to say when it closes higher or lower than it has ever closed in X number of days instead of moves higher or lower.

But the time frames the original turtles used don't work to well these days. Now it needs to be more like 80-100 days for a very significant breakout. The large liquid pairs that trend well are best, especially the EUR/USD.


Just my thoughts on Dochian Breakouts.

Recently a month or two back I took a EUR/USD long trade when the pair broke a 4 and a half month high.

David,

Agreed. I only use closed candles outside the channel to confirm.

Thx

Do you agree on only doing it on large time frames too?

Strictly Daily's for me

Do you trade them on higher than the Daily?

I'm going to give everyone here a little hint.

Think of the Donchian Breakout as a precursor to a trend change.... this is in opposition to the traditional, intuitive way to use a Donchian Breakout for entries with a large lookback, as the turtles did with the stock market.....

When you look at a Channel with a very small lookback (I will not give the optimal value) it often is a sign of some trend change in the direction of the breakout. In other words, it is often an INFLECTION POINT coming off of short term resistance.

Your challenge is to determine how to enter and exit based on the bias that a Breakout gives you. I am nebulous for a reason: I will bring you to water, but you must find out how to drink through your own experience.

Ah, one more mysterious nugget.

Everyone looks for smooth trends with no major corrections. They are appealing to the eye, easy to trade, and probably what you live for.

FORGET ABOUT IT. They happen so seldom, that you can not base your existence as a trader just in thriving off of them.

Instead, let's focus on ugly noise. How can you make money during ugly whipsaws, and still catch small pieces of nice smooth trends when the happen?

That's what separates the real traders from the wannabes. Making profit in ugly noise.

And as for entries and exits....

The traditional set and forget with a static take profit and stop is... not reactive.

Folks, you've got to move in and out based on what the market is doing. I prefer a fully mechanical entry and exit criteria, with a stop and take profit there to close trades if the dynamic exit does not present itself in the life of the trade.